This Just In: Upgrades & Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't just tell you what the analysts said and stop there. No, we're here to hold Wall Street to account. We're going to tell you what the analysts said ... and then show you whether they know what they're talking about. Helping us in this endeavor will be Motley Fool CAPS, our tool not only for rating stocks, but also for rating the analysts who rate stocks. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the best ...
Yesterday morning, with markets closed in the U.S., Goldman Sachs crossed the pond to downgrade the stock of Britain's United Utilities (NYSE:UU). Goldman believes that the United Kingdom's Competition Commission may revise downward its standard for the "appropriate" level of return on capital by U.K. airport operator BAA. If and when that happens, the country's Water Services Regulation Authority (a.k.a. the "Office of Water Services" or "Ofwat") might feel inspired to make similar downward revisions for United Utilities' target profitability. Between this regulatory risk and the stock's considerable outperformance to date (it's up nearly twice as much as the S&P 500 over the last 12 months), Goldman apparently thinks it's time to take profits on the stock.

News of the downgrade helped to spark a minor selloff on the U.K.'s FTSE index, with United Utilities in particular quickly losing 1.4% of its value on the LSE. But by close of trading, the stock had recovered almost entirely from its losses, ending the day down just 0.3% -- suggesting that English investors feel Goldman may have been overreacting. Which poses a question for U.S. investors: Who knows United Utilities best? Globe-striding guru Goldman, or local investors?

It's hard to keep track of all the locals. But in CAPS, we do actively track Goldman's historical performance -- and I must say, it's less than impressive. Boasting a combined rating of just 87.44, Goldman calls less than 54% of its stock picks right and ranks behind more than 2,800 other CAPS investors, few of whom are publicly traded investment banks. Drilling down into specific stock picks, here are a few of Goldman's best:

And here are a couple of its worst:

In the interests of Fool disclosure, I should point out that we've had United Utilities in the Motley Fool Income Investor portfolio since April 2005. Over that time, the stock has thumped the S&P's return 39% to 25%.

Income Investor lead analyst James Early agrees with Goldman that United Utilities is currently trading above its intrinsic value -- but I can't really fault him for not selling out just yet. United Utilities' juicy 5.6% dividend is awfully hard to resist. (But it's far from the best yield in our portfolio. At last count, we had 17 other recommendations paying even more than that. To find out what they are, just click here -- free trial required.)

So there you have it, folks. Goldman thinks the U.K.'s premier water sprinkler is too risky to own. James Early begs to differ. Personally, I'm inclined to follow James' lead on this one, but if you'd prefer to consult a tiebreaker, we just happen to know who's got the best record around on United Utilities. To learn the identity of this mystery stock picker, and see what other stocks he (she?) likes, visit CAPS now.

Fool contributor Rich Smith could do without one of the three states of water right about now. Guess which one. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 34 out of nearly 23,000 raters. He owns no stock named above. Symantec is a Motley Fool Inside Value choice. The Fool's disclosure policy is never watered down.